First, I declare my interest in the Register of Members' Interests: I am a director of a family property and building company.

We live in difficult, almost uncharted times, and I am not sure that we have the solutions to what will be a difficult few years ahead. Ours is an open, liberal economy with a very large financial sector that benefits and has benefited us and has created lots of very well-paid jobs. That means that we will be affected by what happens worldwide. However, it is also legitimate to say that there are signs that we have gone into a difficult period rather less prepared than we could have been. A lot of that goes back to one of the first decisions that this Government made, which was to give independence to the Bank of England. Two things then occurred: the Financial Services Authority was set up to regulate banking; and a lot of the big disasters occurred under that system, which has also given us occupational pensions, the Equitable Life situation and the various other things that have gone wrong in the past few years.

I rather think that the previous system, in which the Bank of England regulated the City, was better. I remember that there was a banking crisis when I left school in 1973 or 1974, when many secondary banks went out of business. Slater Walker had problems. Several other banks went out of a business, a lifeboat was formed and the banks sorted the problem out before it became a major one. Changing from a rather more informal system, whereby there was a flow of information, to a much more formal clipboard-type of system has not worked that well. I am aware that the City is a far larger and more international organisation than it once was, but I cannot help feeling that the FSA's watch has not been a good one.

The other relevant issue is the independence of the Bank in setting interest rates. On the whole, that has received plaudits over the past decade, but I begin to wonder whether the Bank's independence and its setting interest rates has done us any great favours, given that we now have one of the biggest financial busts. I say that because it is clear that there should have been a squeeze and higher interest rates rather earlier. When 120 per cent. mortgages are available, when people are borrowing four or five times their income, when the house-price boom is clearly unsustainable and when first-time buyers cannot get into the market, that is bound to have an inflationary impact on the economy. Therefore, the Bank of England should have acted earlier.

Against that backdrop, it was a little foolish of the Government to continue spending up as they have. The profile of our tax receipts—a lot is City-related and a lot is housing-related—means that they should have done what the Germans did: run a fiscal surplus. One of the reasons we are going to find things very rough and why our room for manoeuvre is rather more limited is because we spent. The Government argue that they spent on schools, hospitals and so on. There were many good things that the money was spent on, but given the rough weather that we have encountered, their decision was foolish and it means that they are far more limited in what they can do.

We have had some discussion about whether the VAT changes will make a lot of difference, and set against the discounting in the high street, I am somewhat sceptical that they will. Indeed, many businesses are finding that there are quite a lot of costs attached to altering VAT. Poole borough council, among others—indeed, all the local authorities that we represent—has spent quite a lot of money making the necessary alterations.

The most important thing is that we deal with the credit markets and with the banking system, because credit still is not flowing. I commend the proposal of my hon. Friend Mr. Osborne, because we must get credit flowing to businesses. If credit does not flow to businesses, either through banks or through some support for lending, no matter what the Government do we will have a sharp downturn that will result in very high unemployment.

I am sceptical about the VAT measures, but if the Government are serious about achieving a fiscal stimulus, they could do a lot worse than to start building some council housing. There is a need for housing, there are a lot of unemployed building workers and land is available because the private sector is building almost nothing. That would be a logical sector in which to provide a stimulus and it would leave a lasting legacy, as opposed to opting for a temporary VAT cut, which will not do what the Government want it to do.

There may be an argument for a fiscal stimulus, but what the Government are doing will not have the impact that they hope. As we all know, the difference between Government spending and tax revenues are two very large figures. If the Government are being a little optimistic about the outlook and the profile of this recession, the real figure might be rather larger than 8 per cent of gross domestic product in terms of debt and we would start to get into areas of difficulty. Mr. Field warned about inflation, and I agree. In particular, if the pound is very soggy, we will import quite a lot of inflation and will end up with higher rates of inflation and a downturn—classic stagflation—which would be very difficult indeed.

Like many Members, I have constituency cases. Some of the people I see who still have housing problems are those who were affected by the downturn under the previous Conservative Government and who perhaps lost their homes because of negative equity—that has a long-term difficult effect. One of the major changes in the British economy is that individuals carry a substantial amount of debt on their credit cards and mortgages—rather more than they might have done 10, 20 or 30 years ago. My real fear is that if unemployment increases beyond 2 million and towards 3 million, many of the people who lose their jobs will be carrying very heavy debts and will find that their long-term prospects are difficult. I welcome what the Government have announced on assistance with mortgages. It will be very valuable, because the long-term impact on many families who lose their jobs and find themselves with major debts against the home or against credit cards when they expected to have a major income will be horrific.

What has happened in the global markets is that a lot of wealth has simply disappeared, because people do not know what many of the debts that banks hold are worth and there is no confidence within the market. That cannot wholly be filled by Governments, and a major adjustment will have to be made. The head of Barclays was probably right today when he talked about house prices falling by 30 per cent., and the sooner prices fall so that we can get to the bottom of the market, the better it will be in terms of the economy's starting to readjust.

One relevant factor is that whereas years ago first-time buyers used to get into the market at about 26, in recent years they have done so at 34 or 35. That is partly because of high house prices, but it is partly because of lifestyle choices—people getting married later and wanting to travel more; they want to go to Kathmandu and so on. When we get to a point where both the housing market adjusts to a lower level and those many young people are feeling more secure in their jobs because they have survived a wave of unemployment, there will be the prospect of people getting back into the housing market and our getting back to a more regular, sensible rolling housing market again. There is some hope, but the housing market has been distorted. A world in which the City paid out bonuses last year of £16 billion and where Russian billionaires buy properties in Chelsea has lifted a lot of the housing market in the south-east. Simply because people will not receive that level of bonuses in the next two or three years, the housing market will have to find a bottom. That will come when first-time buyers do what people have always done—get married and want to buy homes. I hope that the adjustment in the market is quick and that we get back to a more organised market, rather than have a slow fall, and it looks like that is happening.

We have a very unusual recession. People have benefited over the past few years, because as house prices have increased they have been able to withdraw equity for homes, cars, holidays and sometimes for their businesses, but now we have reverse of that process. It will be very painful for those who lose their jobs—we hope that there will not be too many of them—and for all of us in dealing with the consequences of this very serious situation. I commend the proposals of my hon. Friend the Member for Tatton. I fear the worst, but hope for the best.